Moore Kingston Smith
Moore Kingston Smith
How private equity shapes company culture
Tune into episode two of our podcast to hear Business Doctor Clare Harrall, People Director Joe Regan and Apiary Capital partner Dan Adler delve deeper into the world of private equity. They cover strategies that incentivise and support sustainable leadership teams, along with lived examples that lay the groundwork for successful exits.
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00:00:00 Clare
Welcome back to the Business Doctor Podcast. It's Clare Harrall here. In this second part of our private equity discussion, we're diving into the strategies that galvanise robust leadership team for successful exits.
00:00:12 Clare
We're also shining a light on the role of responsible private equity in modelling company culture and wellbeing. Buckle up as we dive into the conversation with Dan and Joe.
00:00:23 Clare
Joe, could you share your strategies for incentivising and supporting a sustainable leadership team, helping build that foundation for a successful exit?
00:00:32 Joe
Uh, yes, certainly. So, one of the crucial areas to examine is the company's employer value proposition and particularly around what unique aspects from the culture, what your USP points in terms of, how you can nurture and maintain existing talent, but also boost your company's appeal to attract new talent.
00:00:53 Joe
And that's both vital for new hires and for potential acquisitions, without forgetting about long term incentive plans, which play a significant role.
00:01:03 Joe
Having these in place ensures that when investment does roll in, a committed leadership team is ready to stay the course and seeing the transaction through and beyond.
00:01:12 Joe
Both looking at salary benchmarking for internal and external is another strategic move to ensure companies remain competitive within the market.
00:01:22 Joe
As Dan previously mentioned [in part one of this podcast series], talent management is also a significant role to play. Our recent successes from some of our financial services clients have involved implementing a performance and potential matrix, and the matrix that we developed with them helps to assess the health of the company's talent, but also
00:01:41 Joe
comes up with personalised interventions that can aid in retaining and nurturing that talent.
00:01:47 Joe
And particularly around one size doesn't fit all, and having personalised interventions does help. A significant advantage of using the nine grid box box model
00:01:58 Joe
is they also highlights the risks to the organisation and helps to weed out any poor performers who might jeopardise the transaction and the company's long term sustainability.
00:02:08 Clare
And I guess a question for both of you, really, what sort of examples do you have of those bespoke incentive plans for management teams in private equity based businesses?
00:02:19 Dan
OK, so I
00:02:21 Dan
Think I the most important thing to say here is again, the beauty about the privacy solution is it should be and can be tailor made to the individual situation. In simplest form though, what we're looking to do
00:02:40 Dan
is create not only the softer career aspirations and desire to build a larger company over the journey, but there's the financial incentives as well and that of course is linked to performance in building shareholder value through equity.
00:02:55 Dan
OK.
00:02:56 Dan
And then the decision to make with the senior team is how to use that equity to create incentive. Do you want to create an incentive that's narrow and for a small group of people, or do you want to create
00:03:09 Dan
something that can be
00:03:10 Dan
spread more widely across a larger section of business? There is no right or wrong way.
00:03:16 Dan
You have to listen to
00:03:17 Dan
your management team and understand:
00:03:18 Dan
what would they recommend would work best for their team?
00:03:22 Dan
You know there
00:03:23 Dan
are at one extreme. I work with the business and create media industry where the recommendation of the CEO was that actually staff came to work, because they just like the work and they liked the the clients. They didn't need the financial incentive. I equally work with the healthcare
00:03:38 Dan
business, where it was led by an ex-military CEO who really did walk his troops through the business plan and the equity incentive went all the way down to the receptionist. So every time we turned up for a board meeting,
00:03:50 Dan
the receptionist knew what we were there for and the fact that it was successful exit created a trickle down feel good effect from top to bottom of the business. But the great thing is, if PE is done well with the right partner, we can create a great incentive and career plan for the entire business.
00:04:10 Clare
Joe, did you want to add anything?
00:04:13 Joe
To echo all of that, I think is the one size doesn't fit all in terms of interventions.
00:04:20 Joe
And I think that in terms of managing talent, you might have some people that have got amazing performance but don't have the potential to move on and progress further. And I think it's about making sure that your
00:04:33 Joe
talent incentives or bespoke packages recognise that you might have valued experts that have got high performance but low potential. And then you'll also have people that have got high performance and high potential, and then it's about looking at career frameworks and it's about a career journey for them and what incentives
00:04:54 Joe
you can put in place to help develop them, so whether that's around coaching, mentoring, it's about progression for those types of interventions.
00:05:05 Clare
Dan, how does private equity ensure the preservation of successful business's unique success factors?
00:05:13 Dan
Well, there's
00:05:14 Dan
several layers to answering that. I think what's really important is making sure we are empowering the business and if we are coming in, we're coming in to help deliver and continue to deliver on the growth within the business. And you know we
00:05:33 Dan
call ourselves a buy and build investor, and that breaks down into supporting further acquisition and but also building the business and supporting that organic growth.
00:05:42 Dan
So it's really important that we continue to see the organic growth and we help empower that. And that might mean investing further in the business in building out the team at the senior level, at the more junior level that might be relevant as well.
00:05:57 Dan
But I think what's really important is, you know we're always looking to understand when we appraise a business.
00:06:03 Dan
What is the USP? What's the special source in this company? What makes it stand out? Why is it at the growth today? And the important thing is to make sure
00:06:12 Dan
those people who delivered that, are able to do that in an unfettered way. I think it's also important to say it feels different when private actually come on board.
00:06:22 Dan
And I'm obviously an advocate of PE, because I think PE done well can be a very empowering thing
00:06:28 Dan
for a business.
00:06:30 Dan
And for the right management team. This is where I come back to cultural fit. And importantly for that management
00:06:37 Dan
Team to do their homework on the prospective PE better as well, and ask the questions about what does that group of guys like in supporting growth, how do they behave when we hit challenges?
00:06:49 Dan
Because that's really important. You know, we all grown-ups. Challenges happen in businesses, but most importantly what we're looking for
00:06:57 Dan
are are no surprises. We don't like good surprises
00:07:00 Dan
and we don't like bad surprises, and I that goes two ways. So, we like to be very open with our management teams as well.
00:07:06 Dan
And I think if we have a very open, two-way dialogue all the way through the preliminary diligence phase of doing a deal and the lifetime of that, and then we've got a healthy relationship. That's important. And we have a healthy partnership where we can talk to each other.
00:07:21 Dan
And we can react positively to opportunities as they come across, and we can also react sensibly when there are challenges to
00:07:29 Dan
overcome as well.
00:07:30 Clare
How do you ensure people feel positive about private equity involvement and remain confident moving forward?
00:07:36 Dan
I think that's a really good point, because
00:07:41 Dan
I understand that for some people and businesses, it can feel quite nerve wracking when private
00:07:47 Dan
equity get involved.
00:07:48 Dan
What does that really mean? And I think it's
00:07:50 Dan
important that we
00:07:51 Dan
convey our message to the people in the business that we are there as a growth partner.
00:07:55 Dan
We we are there to
00:07:57 Dan
support and develop growth. And hopefully the involvement of the private investor is seen by a team as an endorsement of the quality of the business that they have got, and helping them take the business to the next level and the next stage of
00:08:12 Dan
the company's journey.
00:08:13 Clare
Joe, have you got anything to add to that?
00:08:16 Joe
Yeah, I guess probably as an ex-Chief People Officer, I think the importance of
00:08:23 Joe
continually reviewing your engagement levels within the organisation is really important as that private equity and that relationship develops. I think that there's a real risk of burnout in terms of management teams and I think that there's an opportunity in terms of really going for the resilient
00:08:42 Joe
training, topping up the energy levels and how to maintain that energy throughout that period of time.
00:08:49 Joe
I think there's also real value added in terms of regular talent health checks, in terms of where people are at in terms of their performance and their potential.
00:08:59 Joe
I think there's also about, as a good Chief People officer, you'll be looking at reviewing your succession plans to make sure that you're mitigating any risks
00:09:08 Joe
As you move forward. And I think there's also a bit about linking back to the core values and behaviours and making sure that you're sticking to
00:09:20 Joe
what you're good at in terms of as a culture. So I think that they're the watch outs, if you like, from a HR perspective around maintaining that culture and that unique selling point that they had at the beginning.
00:09:33 Clare
With a people centric business, does the ESG element vary based on the differing personal objectives of cost generation?
00:09:41 Dan
I think that's a
00:09:43 Dan
fair comment, but I think ultimately when you're backing entrepreneurial founder LED companies, it's important that they continue to be at the vanguard of within their industry modern and forward thinking and well run and well run from a risk management perspective as well.
00:10:00 Dan
So you're actually, you know, there are some people who are more cynical about the
00:10:05 Dan
ESG agenda but you only
00:10:07 Dan
have to look around you. It is of increasing importance and it's something that we need to address.
00:10:12 Dan
And it's really important as part of the growth within the company and its positioning within its industry, it's something that they manage and they manage well.
00:10:24 Clare
It's really a differentiator, isn't it?
00:10:26 Dan
I think so. I think so. And you just can't ignore it and
00:10:30 Dan
nor should you ignore it.
00:10:32 Clare
So as we conclude, Dan and Joe, could you each share your top three
00:10:36 Clare
takeaways from this discussion?
00:10:37 Clare
Maybe Dan, you could go first.
00:10:40 Dan
Yeah. With pleasure.
00:10:41 Dan
My top takeaways would be for people on my side of the table in private equity, never forget that the people are the most important asset in the business
00:10:51 Dan
you're looking to support. For management teams, my top takeaway would be if you are talking to a number of private equity
00:11:01 Dan
backers, it's about cultural fit and are those the people that I can work well with for the next
00:11:07 Dan
few years of my life?
00:11:08 Dan
And for both parties, I'd say you are entering into a partnership, so you need to understand and appreciate that you have understood each other's aspirations perfectly well and you
00:11:21 Dan
are prepared to
00:11:21 Dan
work on a basis where you can communicate with no surprises and you have an open
00:11:26 Dan
and fluid dialogue.
00:11:29 Joe
For any organisation, the top three things that I would take away is around prioritising employee retention, because businesses interested in investment and expansion have to focus on retaining their existing teams, which is crucial for stability and continuity following a transaction.
00:11:49 Joe
So for me, the second one
00:11:52 Joe
is around acknowledging and overcoming the challenges that are going to be coming ahead. I think recognising the potential hurdles before they happen is crucial and there's obviously going to be some bumps in the road that are going to require resilience and determination from the team to overcome these issues. And then I think for me, the third one is around
00:12:12 Joe
fostering long term incentives. It's essential to consider how to reward and incentivize employees for long term commitment and having a long term investment strategy will encourage individuals to stay the course within the organisation and be prepared for the journey ahead.
00:12:30 Clare
And so that brings us to the end of our private equity discussion. I'm Clare Harrall, thanking you for journeying with us on this two-part series.
00:12:38 Clare
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